08
2018
-
02
The demand for optical devices from cloud companies has been growing year after year.
Summary:
The investment of cloud service companies in large data centers and network infrastructure has created a new and very active segment in the optical components and modules market.
The investment of cloud service companies in large data centers and network infrastructure has created a new and very active segment in the optical components and modules market.
Recently, the well-known market research firm LightCounting released the latest market report, which delves into the development of this market from 2010 to 2018, as well as its potential growth from 2019 to 2024.
LightCounting pointed out that this segment grew by more than 50% in 2016 and by more than 70% in 2017.
LightCounting believes that there are four factors leading to a slowdown in demand for optical devices from cloud service companies in 2019:
As of the end of last year, there was an oversupply of 100GbE products;
The transition to new switches based on Tomahawk 3 ASICs, along with related supply chain tensions;
Uncertainty in sustained economic growth and the escalation of the China-U.S. trade war;
Leading cloud service companies in the U.S. and Europe are facing new regulations and penalties due to data privacy and monopoly issues.
The agency also pointed out that Chinese cloud service companies are most likely to challenge the dominance of the U.S. In 2017-2018, Alibaba significantly increased its investment in the high-speed Ethernet optical field and has now entered the top five.
Baidu and Tencent are well-known cloud companies in China, and they may follow Alibaba's example by increasing infrastructure investment. In China, several cloud service companies operate data center networks, including Kingsoft Cloud, Qiniu, UCloud, and others.
The U.S. government's current policy of establishing new trade barriers will negatively impact the international expansion of U.S. cloud service providers. This will allow many local cloud service providers in other countries, including India, to achieve faster growth. These local leading companies will replicate the business models of Amazon,
Facebook, and Google, including investing in local data centers equipped with the latest technology.
The rapid growth in demand for optical devices from large data centers is beginning to evoke memories of the telecommunications boom from 1999 to 2000. Will history repeat itself? If so, how will this reshape the industry?
Recent economic recessions occur every seven years, and the next recession is long overdue. The origins and timing of this recession are difficult to predict, but it will limit companies' ability to finance new projects and slow down infrastructure investment. Investment in large data centers cannot escape this.
It is likely that some suppliers over-invested from 2017 to 2018, and their current spending slowdown is a necessary correction.
LightCounting pointed out that today's leading cloud service companies are all profitable enterprises with strong cash reserves. They should be able to weather economic downturns while maintaining their long-term strategies.
Highly leveraged companies, including some managed data center providers, will be more severely affected by the next economic slowdown. Heavy leveraged companies, including some managed data center providers, will be significantly impacted by the next slowdown. If some managed providers declare bankruptcy, data center facilities may become oversupplied.
The good news is that today's market is more transparent compared to 1999-2000, with reduced fraud and more genuine innovation. If we face an economic recession, its severity should not be as severe as that of 2001-2002.
LightCounting emphasizes that forecasters often overestimate the short-term impact of innovative applications on the market. New applications like self-driving cars or other AI innovations may seem to require only 2-3 years now, but may ultimately take 10 or 20 years.
Economic recessions may help recalibrate expectations, as the maturity of new technologies and their widespread adoption may take several economic cycles. We should accept such cycles rather than worry about them.
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